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Clarion Group Warns of College Food Services

December 2, 2013

“Be careful what you ask for,” Tom Mac Dermott, FCSI, president of Clarion Group, a food service and hospitality services consulting firm, warns college and university administrators, referring to college food services. “You might get it, and a lot more in the bargain.”

He was referring to the large investments major food service contractors are offering colleges for the opportunity to operate their campus food services. “The dollars certainly are enticing,” he says, “but not quite so attractive when you look at the long strings – really thick cords – attached to them.”

The biggest recent example is Texas A&M University, College Station, TX, which outsourced its food service operations to the Chartwells Division of Compass Group last year.

“With an enrollment of 56,000 students including 8,000 campus residents, Texas A&M certainly isn’t a typical university,” Mac Dermott says. “The financial commitments Chartwells made to the university to gain control of the campus food services are enormous , yet it has caused problems, maybe more problems than it cured.”

At a more typical college or university, the numbers are much smaller, but the rewards and risks of success and failure are proportionately the same, he says.

According to the Texas A&M campus newspaper, The Eagle, The company paid the university a “signing bonus” of some $45 million upon being awarded a five-year contract, with an option for another five years. It paid another $6.5 million this year and spent some $5 million in dining facility renovations, with additional payments to come throughout the contract’s life.

“That’s the good news,” according to Mac Dermott, “but here’s the other side. Meal plans for resident freshmen and sophomores have been made mandatory. By the 2016 academic year, all 8,000 resident students will be required to joint the meal plans at prices that currently range from $1,236 to $2,096 per semester and will increase by 3% per year. When all resident students are required to belong to a meal plan, Chartwells’ revenue from the plans will be about $250 million a year, plus and additional $20 million or so from retail food services, catering and other sources, potentially $2.7 billion if the contract runs for the full ten years.”

But what if all doesn’t go well? “The Eagle reports a great deal of student unhappiness and agitation over the mandatory meals plans, price increases and new restrictions on meal plan options,” he noted. “Already, Chartwells has had to replace the campus general manager, a sure sign of trouble.”

“A college or university has only one good option when its food services become unsatisfactory and the contractor cannot improve them,” according to Mac Dermott. “It must replace the contractor. But wait, what about those dollars the contractor provided? The institution has to reimburse all the money the contractor provided, prorated by the number of years left in the contract. Not many institutions can afford that – the money has been spent – so it must go along with the unsatisfactory food service operation and hope the contractor can improve its performance.”

“Of course, the money isn’t really an investment, its an advance or loan,” he adds. “Repayment comes from higher meal plan charges and other prices. The college never knows how much return the contractor is making on the loan. It’s buried in the cost structure in the financial reports it sends to the client. A college would do better to borrow the money at a known interest rate and let the contractor operate at a known rate of profit.”

“College and university administrators should carefully look the gift horse in the mouth and think about the possible long-term consequences to the campus food services and the institution of accepting immediate money in exchange for a long-term commitment to a single provider,” he advises.

About Clarion Group
Clarion Group is an consulting firm that advises companies, professional firms, colleges and universities, independent schools and institutions in the management, operation and improvement of their in-house employee/student food services, catering, conference, lodging and related hospitality services throughout the U.S. and Canada.